I just came across this plea to raise the minimum wage (nestled into a post telling Obama what he needs to do in response to the current political crisis over the debt limit):

Add a buck to the federal minimum wage. Most major corporations are sitting on cash, cash they won’t spend on expansion or hiring because they see no demand. 72 million Americans make minimum wage. An extra buck an hour would mean they would gross $2,000 more each year, most of which they would take home and spend. It would end up as an annual $125 billion demand for goods and services. Of course, even people who don’t earn minimum wage would tend to get their hourly lifted. Demand and spending raises both employment and tax revenue. Again, CEOs will scream and the GOP will wail, but ordinary Americans will say, “Yeah, I could use $2,000.”

First of all, the claim that 72 million Americans (which is like half of the employed population) make minimum wage  is off by an order of magnitude. The Bureau of Labor Statistics puts the number at 3.6 million in 2009. This means that the $125 billion in stimulative impact of raising the minimum wage would also be an order of magnitude lower.

But numbers aside, this is a counter-productive solution to our current economic problems. Because of the law of demand, raising the minimum wage won’t just result in minimum-wage workers getting paid more; it will cause employment of minimum-wage workers to drop, since, ceteris paribus, people/firms will buy less of something when its price increases.

Casey Mulligan argued recently that the last minimum wage increase (in 2009) cost the United States 800,000 jobs. This may be overstating the damage, but I have trouble imagining that the increase didn’t increase unemployment at least to some degree. There must be some number of American workers who are profitable to hire at five or six dollars an hour but who are not profitable to hire at $7.25. The record low in employment this summer among teens (25%!) is further evidence that our minimum wage has made it illegal for lower-skilled workers to work at their marginal value.

 

 

I had a relatively low stipend-ed internship last summer. For the upcoming summer, I will be in a similar situation. I am fine with it. Both of my respective employers were/are happy to have me on board. A potential problem? Such work – it is work – comes out to being paid below minimum wage. Some say that unpaid internships or low-paid internships should violate minimum wage laws.

Consider the outcomes if unpaid or low-paid internships were deemed illegal. Just as I would propose in a normal labor market, the wage would go up but the number of positions would go down. Forget about what minimum wage laws are designed for or who they are targeted at when the legislation is passed; these laws could be applied to internships.

Now, in this scenario I am happy to work for the think tanks at the given benefits they give me. The think tanks are happy to employ me at the given benefits. Such an arrangement is inherently victimless. I think this situation illustrates that not only can minimum wage laws have adverse and unintended consequences on the poor, but such legislation intrudes on my ability to bargain with an employer and engage in labor I deem personally beneficial. We’ll see how it shakes out.

Matt Yglesias posted a few days ago lamenting the high rate of unemployment for low-skilled American workers:

The brunt of the burden of unemployment is being borne by the least-skilled members of the workforce. In part that’s because high-skill occupational categories haven’t been hammered as heavily as construction and manufacturing…. It’s perhaps a sign of a more efficient, more flexible economy that we’re getting “better” at shifting recession-related burdens onto the low-skill people who are probably worst-positioned (in terms of savings and social capital) to deal with economic distress.

Low-skilled workers, already disadvantaged relative to other Americans, have been hit particularly hard by the recession, as Yglesias points out.  In light of this, we should support pro-employment policies so that this group of Americans will have an easier time finding jobs.  But among all the media coverage of the job creation potential of the stimulus this summer, it was easy to miss the job-killing measure that went into effect on July 24: the 70 cent hourly minimum wage increase from $6.55 to $7.25.  According to UC Irvine economist David Neumark, the wage hike will kill about 300,000 jobs for worders aged 16-24.

Granted, the number of jobs destroyed by this minimum wage hike is probably small compared to the overall low skilled unemployment effects of economic structural changes that Yglesias discusses.  Certainly the reason that the United States is hemorraging low skilled jobs at the current rate isn’t because of our minimum wage laws.  But that doesn’t change the fact that our minimum wage laws are counterproductive and hurting the very people that they are supposed to help.  It’s unfortunate that the professed concern for the poor of influential progressives like Yglesias never leads to criticism of the minimum wage.

What’s especially frustrating for those of us who really care about helping low-wage workers is that there is a program that does what the minimum wage is supposed to do (increase pay for low-wage jobs) and avoids raising employment barriers for the same group it’s intended to help: Earned Income Tax Credits, which subsidize low-skilled workers without raising costs for the employer.  Rather than pushing for increases in the minimum wage, progressives should be clamoring to increase EITC.  If being progressive is about wanting to help the poor, then this should be the progressive position.

Progressives’ continued support for minimum wage increases shows that as a group, despite their populist rhetoric, they don’t care enough about poverty to take the time to learn which policies actually help the poor and which do not.  Instead, they choose to ignore the economic evidence and continue to engage in counterproductive altruistic signaling aimed at the economically illiterate.

In an ode to Carson’s post on moral intuitionism, I’d like to profess my belief in the idea that most people have made up their mind regarding the consequences of three specific well-intentioned schemes that aim to elevate the condition of the worst off in the world/country: the minimum wage, the campaign against sweatshops, and the fair trade movement. Most supporters of these three things assume that the desired aims are achieved and that any arguments against them wreak of indifference towards the plight of the poor.

Here are a few links devoted to each of the topics and suggested for anyone who has the time to read the pieces (some of them take a long time). They may not, in your eyes, be completely right. But at least they make legitimate arguments.

  • Interestingly enough, even progressive hero Paul Krugman supports sweatshops. Also, here are a good article and a short video on why sweatshops are a positive thing.
  • Paper arguing against the minimum wage for its (probable) adverse effect on low-skilled unemployment. Also briefly discusses the slim marginal benefit minimum wage has for its recipients and that egalitarians should focus more on proven effective measures like the negative earned income tax credit. There’s tons more good stuff out there on this subject (both for and against).
  • Fairtrade might not be all it’s cracked up to be. A long report. One piece. Another one. Yet another one. Fair Trade is an issue I’m a little less sure of. But I do think that people almost never acknowledge the possible downsides of it. Even if it has a positive impact or small negative impact, its possible positive effects are no match for the wonders of free trade and immigration in improving the situation of the least well off.